156350123.jpgI get this complaint all the time:  “My mortgage company is not reporting that I am paying my mortgage payment on time each month because I did not reaffirm their loan.”  

Reaffirmation Agreements are documents that are signed in Chapter 7 with creditors for debts you want to keep. This is typically a home loan, a car loan or a furniture loan.  These loans are secured to the property that people want to keep, and the reaffirmation agreement basically pulls that debt out of the bankruptcy.   The agreement is voluntary, but most folks want to reaffirm the car and mortgage loans.

The problem is, most mortgage companies no longer offer reaffirmation agreements.  My guess is that the banks do not believe the reaffirmations are necessary since bankruptcy cancels the debt but not the mortgage lien.  Regardless of whether a bankruptcy is filed or not, if a person fails to pay the mortgage the bank has the right to foreclose.  Fifteen years ago mortgage companies sent us reaffirmation agreements on virtually every case, but now I rarely see the agreements even offered unless a debtor calls the bank to demand one.

Not reaffirming the mortgage loan creates a big problem when a person tries to refinance their mortgage.  Without a credit report showing that the payments are being made on time it is difficult to refinance.  When interest rates drop everyone wants to refinance their loan, but without proof that the loan is being paid on time this can be difficult. 

How can a person report that they are paying the mortgage on time after the bankruptcy case is closed if a reaffirmation agreement was not signed? 

One solution to this problem is to self-report the mortgage payment, sometimes called alternative credit reporting.  This can be done through organizations like PRBC that allow consumers to provide proof that they are paying mortgages, rent, utility bills, cell phone bills and other bills on time.  The National Credit Reporting Association (NCRA), the National Association of Mortgage Brokers (NAMB), the Mortgage Guaranty Insurance Corporation (MGIC) and Fair Issac (FICO) have agreements with PRBC to help homeowners report  their mortgage payments.  PRBC has reached an agreement with Fair Isaac to provide a FICO Expansion Score that helps lenders approve mortgage applications.

My hope is that we see an expansion on these types of alternative credit reporting options.  There are several benefits to not reaffirming a mortgage loan.  If you become unemployed or sick and cannot make future house payments, the benefit of not reaffirming the mortgage can be significant.  If self-reporting options improve over time, reaffirming a mortgage loan may become a thing of the past.